Opt-Out Programs: What's the Difference?

The last few years the term “opt-out” has been thrown around a lot when discussing state workers’ compensation systems, but what exactly does “opt-out” mean?

Every state has a workers’ compensation insurance program which requires employers to provide certain benefits to their employees to cover lost wages and medical expenses for on-the-job injury. If a state creates an opt-out program they are allowing certain employers to “opt-out” of the state regulated policies and provide their own benefit plan for injured workers. These opt-out programs allow employers to create their own terms of coverage, such as what injuries are covered, when injuries need to be reported, and even how disputed claims are handled.

The first opt-out like system came in Texas, which allows employers to be nonsubscribers to the state’s workers’ comp program. By not subscribing, an employer loses the so-called “exclusive remedy” protection that a state workers’ comp system creates, which means, if an employee is injured they could sue their employer in the courts to collect damages. Some employers that opt-out create their own benefit plans to employees that restrict the employee’s use of the court system, but some nonsubscriber employers offer no coverage, leaving employees free to seek damages through the courts. In 2014, 20% of employees, an estimated 1.9 million people, worked for nonsubscribers.

The only other state to implement an opt-out program was Oklahoma in 2013, however just last month, the state Supreme Court ruled the Oklahoma opt-out program unconstitutional. But even with that decision other states like South Carolina and Tennessee remain committed to exploring whether or not an opt-out program would work for them.

There is a lot of conversation surrounding the pros and cons to an opt-out system. While an opt-out program might help with cost containment and force more company-wide engagement in developing and understanding a workers’ comp program, it might also have less benefits for employees and give too much control to employers. Whether you support or oppose the programs, they are something to watch over the next few years as states determine if it’s the right fit for them.